Montana Medical Care Savings Accounts

MontGuide199817 HR

Revised January 20151

What is an MSA?• An account that can be used for paying eligible medical expenses that are not covered by: Health insurance policy Flexible spending plan

(FSA)

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Where to establish MSA accounts?

• Bank• Savings Bank• Credit Union

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Where to establish MSA accounts?

• Trust company• Mutual fund company• Brokerage firm

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Caution• Minimum Balance?

May range from $20 to $1,000

• Fees? • For monthly withdrawals that exceed a certain amount

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MSA Rules

• Must be separate from other accounts

• Joint accounts for MSAs not allowed

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Who is Eligible?

•Montana resident tax payers only

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Minor Child

•Cannot establish MSA for: –Minor child under age 18

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Parents’ MSAs

•May be used for minor child’s eligible medical expenses

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MSA Deduction

• $3,000 for each taxpayer

• $6,000 married couple

Separate Accounts Can use funds for one another

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MSA Saves on Montana Income Taxes

• Contributions:–Reduce Montana income

by amount deposited–Taxes saved depend on tax

bracket 11

Montana Taxable Income

Adjusted income $ 49,000 MSA deposit - $ 3,000 Taxable Income $46,000

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Tax Brackets & Rates Montana- 2014

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At Least But less Than Then your tax is:

$0 $2,800 1%

$2,800 $5,000 2%

$5,000 $7,600 3%

$7,600 $10,300 4%

$10,300 $13,300 5%

$13,300 $17,100 6%

$17,100 or more 6.9%

www.revenue.mt.gov

MT Tax Savings with MSA vs Regular Savings AccountDeposit: $3,000

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• Taxable Income more than $17,100 (6.9% tax bracket)

Savings MSASavings Deposit $3,000

Interest Rate: x .0005Earnings $ 1.50

Savings Deposit $3,000 Tax Bracket: x .069

Tax Savings: $207

Example: Barbara

• January 31–$3,000 deposited in MSA

• Had $2,000 eligible medical expenses during year

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Barbara’s Montana Income

• Reduced by $3,000 Not $2,000 withdrawn

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Adjusted income $ 42,000MSA deposit - $3,000Taxable Income $ 39,000

Reduced Income for Tax Purposes

• Total deposited in MSANot amount withdrawn for

medical expenses 17

Interest earnings

• Not subject to Montana income taxation if:–Left in the account–Withdrawn for eligible medical care

expenses

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What are eligible medical expenses?

• Montana accepts any health care expense allowed as a deduction on federal income tax return as “eligible”

• IRS Publication 50219

Eligible MSA Expenses

• Health insurance premiums

• Long-term care insurance or annuity

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Eligible MSA Expenses

•Prescribed drugs• Insulin•Dental care

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Eligible MSA Expenses

• Eyeglasses• Crutches • Hearing Aids• Nursing Home Care

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Medicare Part A

•Not an eligible medical expense Covered by Social Security

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Medicare Parts B & D

•Eligible medical expenses

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Not Eligible

• Any medical expenses that are or have been reimbursed by some other type of insurance:– Health policy– Automobile policy– Workers Compensation

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Double dipping not allowed

Can’t claim twice for same expense:

If claimed for FSA or HSA can’t claim for MSA

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Who are Eligible Dependents?

• Spouse• Child

– Age 19 & under – Age 23 & under

• (if in college)27

Who can administer my MSA?

• You can Self-administered account Almost all MSAs are self-

administered

• Someone you pay Registered Account

Administrator 28

What if I need money for non-eligible expenses?

• Considered non-eligible withdrawal: –Subject to 10% penalty–Withdrawal counted as income in

Montana• Unless withdrawn on last business day of

the year 29

Example: Duane

• Withdraws $6,000 to buy car in July 2014

Adjusted Income $ 40,000 MSA Withdrawal + 6,000 Taxable Income $ 46,000

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Example: Duanenon-eligible withdrawal

Increased Taxes ($6,000 x 6.9%) $ 41410% Penalty + 600 Total Cost of Withdrawal: $1,014

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No 10% Penalty

1. If non-eligible withdrawal made on last business weekday of December• Amount included as income,

however

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No 10% Penalty

2. Withdrawal due to death of account holder• Amount included in

decedent’s income in year died, unless POD spouse or lineal descendant

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3. Direct transfer to another MSA with different financial institution • Caution, wire transfer fees $25

to each institution

No 10% Penalty

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4. Direct transfer from one type of savings account to another within the financial institution: Example: MSA savings

account to MSA CD

No 10% Penalty

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• Withdrawals (not for eligible medical care expenses)

Reported MSA Form Rev. 04 14

Reporting 10% Penalty

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• Withdrawal for medical expenses paid in prior year –Must be made by

January 15

Dept of Revenue Rule

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What happens to my MSA when I die?

• Balance passes by: – POD Beneficiary Designation

– Written Will

– Montana Intestacy Statutes• Dying Without a Will

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Income tax savings to Beneficiaries

• POD to Spouse & Lineal Descendants Money can pass to their MSAs

without being subject to Montana income taxation

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What if I become incapacitated?

• Funds can be withdrawn by: –Person holding Power of

Attorney (agent)–Person named as Conservator by district

court

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What happens if I move to another state?

• Unused MSA Funds– Counted as Income on

final Montana Income Tax Return

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Planning Technique

• Track medical expenses January - December

• Deposit from savings to MSA the amount of eligible medical care expenses for the year

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Planning Technique

• Withdraw from MSA total amount needed for eligible medical care expenses during year – One withdrawal

• Deposit back to savings

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FormsDepartment of Revenuewww.revenue.mt.gov

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MSA Reporting Requirements

• File Form: Annual Reporting Form for Self

Administered Individual Accounts

Department of Revenuewww.revenue.mt.gov

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Enter Amount OnMontana Individual Income Tax Return

• Form 2 Schedule II: Line 18

• Form 2M Line 32

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Form-MSA

Simple to fill out: • Name• Social Security Number• Name & Address of

Financial Institution • MSA account number

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1. Current year deposits• No more than $3,000

2. Deposits from prior years not counted

3. Add lines 1 & 24. Add interest and other

income5. Add lines 4 & 5

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Form MSA: Summary

Percent of Montanans with MSAs

• Only 1.4%• Why?

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Montana Medical Care Savings Accounts

MontGuide199817 HR

Revised January 201550